Venizelos debriefs Eurogroup, Greece still under pressure
Eurozone finance ministers pressed an incoming Greek unity government Monday to prove it can implement austerity pledges amid an acute risk the debt crisis could drag down Italy.
As ministers were to gather for evening talks in Brussels, borrowing costs for Italy, the eurozone’s third-biggest economy, rose to the highest level since the creation of the euro in 1999 — but work on beefing up a rescue fund big enough to protect Rome appeared stalled.
Italian share prices rallied sharply on rumours that Prime Minister Silvio Berlusconi would resign, but Berlusconi rejected such talk as totally unfounded.
European markets gyrated in edgy trading over the never-ending two-year eurozone drama as Greece tried to form a cross-party government and the yield on Italian 10-year debt bonds rose to a record 6.596 percent in morning trading.
Such high borrowing costs are close to levels which forced Greece, Ireland and Portugal into EU-IMF bailouts.
The French government announced a new round of spending cuts and tax rises to correct its budget and bolster market confidence in its AAA credit rating.
Stocks in Paris slumped and in Spain, another fragile euro state, markets plunged 3.25 percent at the opening.
In Brussels, the ministers will look at whether to release eight billion euros ($11 billion) in loans to a future Greek coalition government agreed in a dramatic deal in Athens late on Sunday.
The European Commission, which takes part in international audits of stressed eurozone economies alongside the IMF, demanded «clarity» from Athens.
Eurozone chief Jean-Claude Juncker arrived for the talks saying much would depend on news brought by Greek Finance Minister Evengelos Venizelos.
“I have asked the Greek finance minister to debrief me on the exact situation,» Luxembourg Prime Minister Juncker said.
“We will discuss of course the sixth disbursement but it depends on the answers we will be given by the Greek government in order to know if yes or no we will release the sixth disbursement today.”
Venizelos said on arrival that a deal to form a national unity government in Greece was itself sufficient.
“We have a new government of national unity and of national responsibility,» he said. «This is the proof of our commitment and of our national capacity to implement the programme and to reconstruct our country.”
With the risk rising that Italy could be the next domino to fall, EU diplomats said a fresh meeting of eurozone finance ministers may be held November 17.
With Spain and even France also under pressure, the eurozone needs to boost its European Financial Stability Facility (EFSF).
Officials are working on «leveraging» its capacity from 440 billion to one trillion euros.
But a diplomatic source said that target was proving difficult to reach, after failing to win support from international partners at G20 talks last week, and in any case was insufficient given the worries over Italy.
“If there is enough water to put out a fire, it might be worth investing in water — but not if it just turns to steam,» he said of Europe’s failure so far to secure cash pledges from elsewhere.
The European Commission warned that progress on this track needed speeding up.
In Athens, Prime Minister George Papandreou agreed to step down to make way for a national unity government expected to ratify a crucial 230-billion-euro debt rescue package, agreed days ago by Greece’s euro partners but in limbo due to political drama in Athens.
The new eurozone rescue includes 100 billion euros in new loans for the Athens government and a debt reduction scheme with banks, which agreed to lose 50 percent of their bond holdings to cut Greece’s debt by 100 billion euros.
First, though, Greece needs the blocked eight billion euros in loans from an existing 110-billion-euro bailout by mid-December to stay afloat.
[AFP]
